I had been planning, for some time, to run a conference on the topic of multiple equilibria sponsored by Warwick University. Andy Haldane and Sujit Kapadia had been talking with Alan Taylor of U.C. Davis about organizing a conference on the topic of behavioural economics. After talking with Andy, Sujit and Alan, we decided it would be ideal to combine our plans into a single conference that would highlight the promise of studying the marriage of psychology with multiple equilibria in economics. The video ... explains why this is a fruitful idea.

Roger goes on to discuss how "psychology enters the picture," and why the Robert Lucas idea that "the expectations of market participants are determined by economic fundamentals ... makes little or no sense in models ... where there are multiple equilibria." Also:

In addition to the introductory video, linked above, we also recorded videos from many of the conference presenters and discussants. I will be releasing these videos in a series of posts in the coming weeks and I will discuss the research associated with the accompanying topic. You can find links to the original papers on the conference website linked here. Stay tuned.

09:30 - 10:25 U.S. Monetary Policy in the Post-war PeriodGiovanni Nicoló, University of California Los Angeles Discussant: Ana Galvao, University of Warwick

10:25 - 11:20 The Inverted Leading Indicator Property and Redistribution Effect of the Interest Rate, Patrick Pintus, University of Aix-Marseile and Banque de France Discussant: Kaushik Mitra, University of Birmingham

10:15 am Daniel Garcia-Macia, International Monetary Fund Chang-Tai Hsieh, University of Chicago and NBER Peter Klenow, Stanford University and NBER How Destructive is Innovation? Discussant: Andrew Atkeson, University of California at Los Angeles and NBER

4:00 pm Michael Gelman, University of Michigan Yuriy Gorodnichenko, University of California at Berkeley and NBER Shachar Kariv, University of California at Berkeley Dmitri Koustas, University of California at Berkeley Matthew Shapiro, University of Michigan and NBER Dan Silverman, Arizona State University and NBER Steven Tadelis, University of California at Berkeley and NBER The Response of Consumer Spending to Changes in Gasoline Prices Discussant: Arlene Wong, Federal Reserve Bank of Minneapolis

4:30 pm Arunima Sinha, Fordham University, "A Lesson from the Great Depression that the Fed Might have Learned: A Comparison of the 1932 Open Market Purchases with Quantitative Easing" Discussant: Vasco Curdia

6:45 pm Conference Dinner, with address by James Bullard, President and CEO, Federal Reserve Bank of St. Louis.

Saturday, April 18, 2015

Declining Desire to Work and Downward Trends in Unemployment and Participation, by Regis Barnichon and Andrew Figura: Abstract The US labor market has witnessed two apparently unrelated trends in the last 30 years: a decline in unemployment between the early 1980s and the early 2000s, and a decline in labor force participation since the early 2000s. We show that a substantial factor behind both trends is a decline in desire to work among individuals outside the labor force, with a particularly strong decline during the second half of the 90s. A decline in desire to work lowers both the unemployment rate and the participation rate, because a nonparticipant who wants to work has a high probability to join the unemployment pool in the future, while a nonparticipant who does not want to work has a low probability to ever enter the labor force. We use cross-sectional variation to estimate a model of non-participants' propensity to want a job, and we find that changes in the provision of welfare and social insurance, possibly linked to the mid-90s welfare reforms, explain about 50 percent of the decline in desire to work.

Second paper:

External and Public Debt Crises, by Cristina Arellano, Andrew Atkeson, and Mark Wright: Abstract In recent years, the members of two advanced monetary and economic unions -- the nations of the Eurozone and the states of the United States of America -- experienced debt crises with spreads on government borrowing rising dramatically. Despite the similar behavior of spreads on public debt, these crises were fundamentally different in nature. In Europe, the crisis occurred after a period of significant increases in government indebtedness from levels that were already substantial, whereas in the USA state government borrowing was limited and remained roughly unchanged. Moreover, whereas the most troubled nations of Europe experienced a sudden stop in private capital flows and private sector borrowers also faced large rises in spreads, there is little evidence that private borrowing in US states was differentially affected by the creditworthiness of state governments. In this sense, we can say that the US States experienced a public debt crisis , whereas the nations of Europe experienced an external debt crisis affecting both public and private borrowers. Why did Europe experience an external debt crisis and the US States only a public debt crisis? And, why did the members of other economic unions, such as the provinces of Canada, not experience a debt crisis at all despite high and rising provincial public debt levels? In this paper, we construct a model of default on domestic and external public debt and interference in private external debt contracts and use it to argue that these different debt experiences result from the interplay of differences in the ability of governments to interfere in the private external debt contracts of their citizens, with differences in the flexibility of state fiscal institutions. We also assemble a range of empirical evidence that suggests that the US States are less fiscally flexible but more constrained in their ability to interfere in private contracts than the members of other economic unions, which simultaneously exposes the states to public debt crises while insulating them from an external debt crisis affecting private sector borrowers within the state. In contrast, Eurozone nations are more fiscally flexible but have a greater ability to interfere with the contracts, which together allow for more public borrowing at the cost of a joint public and private external debt crisis. Lastly, Canadian provincial governments are both fiscally flexible and limited in their ability to interfere, which allows both for more public borrowing and limits the likelihood of either a public or external debt crisis occurring. We draw lessons from these findings for the future design of Eurozone economic and legal institutions.

Friday, April 17, 2015

Expectations and Investment, by Nicola Gennaioli, Yueran Ma, and Andrei Shleifer: Abstract Using micro data from Duke University quarterly survey of Chief Financial Officers, we show that corporate investment plans as well as actual investment are well explained by CFOs’ expectations of earnings growth. The information in expectations data is not subsumed by traditional variables, such as Tobin’s Q or discount rates. We also show that errors in CFO expectations of earnings growth are predictable from past earnings and other data, pointing to extrapolative structure of expectations and suggesting that expectations may not be rational . This evidence, like earlier findings in finance, points to the usefulness of data on actual expectations for understanding economic behavior.

Second paper:

Trends and Cycles in China's Macroeconomy, by Chun Chang, Kaji Chen, Daniel Waggoner, and Tao Zha: Abstract We make three contributions in this paper. First, we provide a core of macroeconomic time series usable for systematic research on China. Second, we document, through various empirical methods, the robust findings about striking patterns of trend and cycle. Third, we build a theoretical model that accounts for these facts. The model's mechanism and assumptions are corroborated by institutional details, disaggregated data, and banking time series, all of which are distinctive of Chinese characteristics. The departure of our theoretical model from standard ones offers a constructive framework for studying China's macroeconomy.

Third paper:

Demystifying the Chinese Housing Boom, byHanming Fang, Quanlin Gu, Wei Xiong, and Li-An Zhou: Abstract We construct housing price indices for 120 major cities in China in 2003 - 2013 based on sequential sales of new homes within the same housing developments. By using these indices and detailed information on mortgage borrowers across these cities, we find enormous housing price appreciation during the decade, which was accompanied by equally impressive growth in household income, except in a few first-tier cities. Housing market participation by households from the low-income fraction of the urban population remained steady. Nevertheless, bottom-income mortgage borrowers endured severe financial burdens by using price-to-income ratios over eight to buy homes, which reflected their expectations of persistently high income growth into the future. Such future income expectations could contract substantially in the event of a sudden stop in the Chinese economy and present an important source of risk to the housing market.

Fourth paper:

Networks and the Macroeconomy: An Empirical Exploration, by Daron Acemoglu, Ufuk Akcigit, and William Kerr: Abstract The propagation of macroeconomic shocks through input-output and geographic networks can be a powerful driver of macroeconomic fluctuations. We first exposit that in the presence of Cobb-Douglas production functions and consumer preferences, there is a specific pattern of economic transmission whereby demand-side shocks propagate upstream (to input supplying industries) and supply-side shocks propagate downstream (to customer industries) and that there is a tight relationship between the direct impact of a shock and the magnitudes of the downstream and the upstream indirect effects. We then investigate the short-run propagation of four different types of industry-level shocks: two demand-side ones (the exogenous component of the variation in industry imports from China and changes in federal spending) and two supply-side ones (TFP shocks and variation in knowledge/ideas coming from foreign patent- ing). In each case, we find substantial propagation of these shocks through the input-output network, with a pattern broadly consistent with theory. Quantitatively, the network-based propagation is larger than the direct effects of the shocks, sometimes by several fold. We also show quantitatively large effects from the geographic network, capturing the fact that the local propagation of a shock to an industry will fall more heavily on other industries that tend to collocate with it across local markets. Our results suggest that the transmission of various different types of shocks through economic networks and industry inter-linkages could have first-order implications for the macroeconomy.

11:30 am Daniel Greenwald, New York UniversityMartin Lettau, University of California at Berkeley and NBERSydney Ludvigson, New York University and NBEROrigins of Stock Market Fluctuations Discussant: John Cochrane, University of Chicago and NBER

Wednesday, August 20, 2014

Lindau Meeting of the Laureates of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel

The 5th Lindau Meeting on Economic Sciences will provide an open exchange of economic expertise and inspire cross-cultural and inter-generational encounters among economists from all over the world. From 19 to 23 August, the participating 18 Nobel Laureates and 460 young scientists will have plenty of opportunity for an intensive exchange of ideas.

The meeting will open on 20 August with a keynote address by the German Chancellor Angela Merkel, and will also feature “a panoramic view on the situation and prospects in Latin America” by Mario Vargas Llosa, the 2010 Nobel Laureate in Literature. The scientific programme will address central fields of the discipline, ranging from econometrics, game theory, and neo-classical growth theory to mechanism design and systemic risk measurement. The overarching question “How useful is economics – how is economics useful?” will also be subject of the meeting’s closing panel debate on Mainau Island on Saturday, 23 August.

Programme

The scientific programme of the 5th Lindau Meeting on Economic Sciences will comprise lectures and panel discussions (accessible for all registered meeting participants and guests), as well as discussion sessions and master classes (both accessible only for participating Nobel Laureates and young scientists).

A detailed version of the programme including all lecture titles of the participating laureates with links to their abstracts is available in the Lindau Mediatheque. Please find a PDF version of the printed programme here. To get an overview of the meeting schedule you can also download the programme structure.

Participating Laureates

18 Laureates will attend the 5th Lindau Meeting on Economic Sciences. Among 17 economists there will also be Mario Vargas Llosa, Nobel Laureate in Literature in 2010, participating in the meeting. Please find further information on the Laureates' profiles including their CVs in the Lindau Mediatheque.

Monday, June 02, 2014

Joseph Stiglitz lecture: 16:30 to 17:30 Monday, June 2: "Creating a Learning Society: A New Approach to Growth, Development, and Social Progress

TIGER Insights: One-hour intensive sessions on specific themes, in a small format. Seats are limited to 50 to encourage debate and interactions, but the sessions can be followed online (live-streaming). Registration on-site from 9am on the morning of each session. ROARING Debates: Key policy-related debates in a round-table format aimed at a wide audience and open to all TIGER Forum participants. Held in the main lecture hall, registration online. ** Watch Live Streams Here ** [Note: we are 9 hours ahead of west coast time.]

Sunday, April 13, 2014

Information technologies and infrastructure play an increasingly important role in daily life. But at the same time, cyber security is becoming increasingly threatened. How does society deal with these conflicting challenges.

Thursday, April 10, 2014

INET: Human After All - April 10-12: The Institute for New Economic Thinking is hosting its fifth annual conference with its partner the Centre for International Governance Innovation (CIGI) at the Fairmont Royal York Hotel in Toronto. The conference topic is the economics of innovation and the impact of innovation on society. Speakers will include a roster of newsmakers, including former U.S. Treasury Secretary Larry Summers, Nobel laureates Joseph Stiglitz and James Heckman, former co-CEO of Research In Motion Jim Balsillie, Bank of England Chief Economist Andy Haldane, former head of the U.K. Financial Services Authority Adair Lord Turner, Harvard University professor and best-selling author Michael Sandel, and author, essayist and President of PEN International, John Ralston Saul. Watch Live beginning at noon EST.

I will post the conference schedule as soon as I can -- for some reason it's not yet available

Update: Today's schedule (I'll post Friday and Saturday later):

CANADIAN ROOM 1:00–2:45 PM LUNCH KEYNOTE ( OPENING ) Is Innovation Always A Good Thing? Technology and innovation create “disruption.” That basically means creating new markets or value networks, which eventually disrupts earlier technologies. New products, new inventions, new sources of demand are all possible. Yet, the very innovation that creates these opportunities also can create job losses as well as having significant distributional consequences for society as a whole.

The panel seeks to explore this duality.

James Balsillie Chair, Centre for International Governance Innovation

Lisa Cook Professor, Department of Economics, Michigan State University

Robert Johnson President, Institute for New Economic Thinking

Richard Nelson Professor of Economics, Columbia University

Moderator Richard Waters Financial Times

CANADIAN ROOM 3:00–4:30 PM PLENARY PANEL Innovation: Do Private Returns Produce the Social Returns We Need? The machines of the frst age replaced and multiplied the physical labor of humans and animals. The machines of the second age will replace and multiply our intelligence. The driving force behind this revolution will, argue the “techno-positivists,” exponentially increase the power (or exponentially reduce the cost) of computing. The celebrated example is Moore’s Law, named after Gordon Moore, a founder of Intel. For half a century, the number of transistors on a semiconductor chip has doubled at least every two years. But the information age has coincided with—and must, to some extent, have caused—adverse economic trends: stagnation of median real incomes; rising inequality of labor income and of the distribution of income between labor and capital; and growing long- term unemployment. Are the great gains in wealth and material prosperity created by our entrepreneurs in and of themselves sufficient to produce desired social returns demanded in today’s world?

Simon Head Fellow, Institute for Public Knowledge, New York University, and Director of Programs, The New York Review of Books Foundation

Mariana Mazzucato R.M. Phillips Professor in the Economics of Innovation, SPRU, University of Sussex

Stian Westlake Executive Director, National Endowment for Science Technology and the Arts

CANADIAN ROOM 4:45–6:15 PM PLENARY PANEL Have we Repaired Financial Regulations since Lehman? The 2008 global financial crisis led to the worst recession in the developed world since the Great Depression. Governments had to respond decisively on a large scale to contain the destructive impact of massive debt deflation, (although there is some question as to the degree to which this represented support for the financial ser - vices industry vs the needs of the real economy). Still, large financial institutions such as American International Group, Bear Stearns, Lehman Brothers, Countrywide Financial, Washington Mutual, Wachovia, Northern Rock, and Landsbanki collapsed; thousands of small-to-medium- sized financial institutions failed or needed to be rescued; millions of households lost their retirement savings, jobs, homes, and communities; and numerous non- financial businesses closed. Five years later, we are still experiencing the effects of the crisis. Are the financial reforms and regulations introduced since the onset of the crisis likely to be effective in preventing another catastrophe?

Anat Admati Professor, Stanford Graduate School of Business

Richard Bookstaber U.S. Treasury with the Office of Financial Research and FSOC

CANADIAN ROOM 7:15–9:00 PM KEYNOTE DINNER Innovation: To What Purpose? Innovation is said to be essential for survival in most industries. Yet, innovation can be very risky—some inno - vations can even destroy value. How can managers and entrepreneurs know what to do, and how should this trade-o ff between innovation and risk be treated? What are the broader social goals that ought to be achieved via innovation?

Presenter John Ralston Saul Novelist, Essayist and President, PEN International

Sponsored byFederal Reserve Bank of Dallas, IMF Research Department and Journal of Money, Credit and Banking

The Great Recession interrupted a long boom in real house prices in many countries. In the U.S., the collapse in house prices and residential construction, the surge in mortgage delinquencies and foreclosures, as well as the dramatic tightening in mortgage standards and fall in household leverage played a major role in the recent financial crisis. Similar factors have affected a number of other countries. These developments have prompted a great deal of new research on housing and mortgage markets, macroeconomic models with housing credit channels, and macro-prudential regulation and macroeconomic stability.

To inform researchers and policymakers of these efforts and to foster future advances, the Federal Reserve Bank of Dallas, the IMF Research Department and the Journal of Money, Credit, and Banking are sponsoring a two-day conference to provide a venue for original theoretical and empirical studies on the macroeconomics of housing, focusing on the lessons learned from the crisis and outstanding issues that remain to be addressed.

Explaining House Price Dynamics: Isolating the Role of Non-Fundamentals Thao Le, National University of Singapore David Ling*, University of Florida Joseph Ooi, National University of Singapore

Discussant: Kevin Lansing, Federal Reserve Bank of San Francisco

7 p.m.

Conference Reception and Dinner

Friday, November 15, 2013

8:15 a.m.

Paper Session 4 Chair: Rabah Arezki, International Monetary Fund

Supply Restrictions, Subprime Lending and Regional U.S. Housing Prices Andre Kallålk Anundsen, University of Oslo Christian Heebøll*, University of Copenhagen

Discussant: Andra Ghent, Arizona State University

Timing of Homeownership, Credit Constraint and House Price Expectation Sumit Agarwal, National University of Singapore Luojia Hu*, Federal Reserve Bank of Chicago Xing Huang, Michigan State University

Discussant: Daniel Fetter, Wellesley College

10 a.m.

Keynote 2

Robert Shiller, Yale University

11:15 a.m.

Panel 2: Housing and Macroeconomics Chair: Sony Kapoor, Re-Define and London School of Economics

Panelists: Edward Leamer, University of California, Los Angeles John Muellbauer, University of Oxford Amir Sufi, University of Chicago Stijn Claessens, International Monetary Fund

12:30 p.m.

Lunch

1:45 p.m.

Paper Session 5 Chair: Robert DeYoung, University of Kansas and Journal of Money, Credit and Banking

Joint Dynamics of House Prices and Foreclosures Yavuz Arslan, Central Bank of the Republic of Turkey Bulent Guler*, Indiana University Temel Taskin, Central Bank of the Republic of Turkey

Discussant: Paul Willen, Federal Reserve Bank of Boston

The Impact of Housing Markets on Consumer Debt: Credit Report Evidence from 1999 to 2012 Meta Brown*, Federal Reserve Bank of New York Sarah Stein, Federal Reserve Bank of New York Basit Zafir, Federal Reserve Bank of New York

Friday, October 25, 2013

Fiscal Multipliers: Liquidity Traps and Currency Unions, by Emmanuel Farhi
and Iván Werning, NBER: We provide explicit solutions for government
spending multipliers during a liquidity trap and within a fixed exchange
regime using standard closed and open-economy models. We confirm the
potential for large multipliers during liquidity traps. For a currency
union, we show that self-financed multipliers are small, always below unity.
However, outside transfers or windfalls can generate larger responses in
out- put, whether or not they are spent by the government. Our solutions are
relevant for local and national multipliers, providing insight into the
economic mechanisms at work as well as the testable implications of these
models.

Discussant: The "Keynesian demand effect can potentially be very large." Here
is a bit of the introduction that explains further:

1 Introduction Economists generally agree that
macroeconomic stabilization should be handled first and foremost by monetary
policy. Yet monetary policy can run into constraints that impair its
effectiveness. For example, the economy may find itself in a liquidity trap,
where interest rates hit zero, preventing further reductions in the interest
rate. Similarly, countries that belong to currency unions, or states within
a country, do not have the option of an independent monetary policy. Some
economists advocate for fiscal policy to fill this void, increasing
government spending to stimulate the economy. Others disagree, and the issue
remains deeply controversial, as evidenced by vigorous debates on the
magnitude of fiscal multipliers. No doubt, this situation stems partly from
the lack of definitive empirical evidence, but, in our view, the absence of
clear theoretical benchmarks also plays an important role. Although various
recent contributions have substantially furthered our understanding, to
date, the implications of standard macroeconomic models have not been fully
worked out. This is the goal of our paper.

We solve for the response of the economy to changes in the path for
government spending during liquidity traps or within currency unions using
standard closed and open-economy monetary models. ...

Our results confirm that fiscal policy can be especially potent during a
liquidity trap. The multiplier for output is greater than one. The mechanism
for this result is that government spending promotes inflation. With fixed
nominal interest rates, this reduces real interest rates which increases
current spending. The increase in consumption in turn leads to more
inflation, creating a feedback loop. The fiscal multiplier is increasing in
the degree of price flexibility, which is intuitive given that the mechanism
relies on the response of inflation. We show that backloading spending leads
to larger effects; the rationale is that inflation then has more time to
affect spending decisions.

In a currency union, by contrast, government spending is less effective at
increasing output. We show that consumption is depressed, so that the
multiplier is less than one. Moreover, price flexibility diminishes the
effectiveness of spending, instead of increasing it. We explain this result
using a simple argument that illustrates its robustness. Government spending
leads to inflation in domestically produced goods and this loss in
competitiveness depresses private spending. Applied to current debates in
Europe, this highlights a possible tradeoff: putting off fiscal
consolidation may postpone internal devaluations that actually help
reactivate private spending.

It may seem surprising that fiscal multipliers are necessarily less than one
whenever the exchange rate is fixed, because this contrasts sharply with the
effects during liquidity traps. Our analytical approach allows us to uncover
the crucial difference in monetary policy: although a fixed exchange rate
implies a fixed nominal interest rate, the converse is not true. Indeed, we
prove that the liquidity trap analysis implicitly combines a shock to
government spending with a one-off devaluation. The positive response of
consumption relies entirely on this devaluation. A currency union rules out
such devaluations, explaining the negative response of consumption.

In the context of a currency union, our results uncover the importance of
transfers from the outside, from other countries or regions. In the short
run, when prices haven’t fully adjusted, positive transfers from the rest of
the world increase the demand for home goods, stimulating output. We compute
“transfer multipliers” that capture the response of the economy to transfers
from the outside. We show that these multipliers may be large and depend
crucially on the degree of openness of the domestic economy.

Outside transfers are often tied to government spending. In the United
States federal military spending allocated to a particular state is financed
by the country as a whole. The same is true for exogenous differences in
stimulus payments, due to idiosyncratic provisions in the law. Likewise,
idiosyncratic portfolio returns accruing to a particular state’s coffers
represent a windfall for this state against the rest. When changes in
spending are financed by such outside transfers, the associated multipliers
are a combination of self-financed multipliers and transfer multipliers. As
a result, multipliers may be substantially larger than one.

Finally, we explore non-Ricardian effects from fiscal policy by introducing
hand-to- mouth consumers. We think of this as a tractable way of modeling
liquidity constraints. In both in a liquidity trap and in a currency union,
government spending now has an additional stimulative effect. It increases
the income and consumption of hand-to-mouth agents. This effects is largest
when spending is deficit financed; indeed, the effects may in some cases
depend entirely on deficits, not spending per se. Overall, although hand to
mouth consumers introduce an additional effect most of our conclusions, such
as the comparison of fiscal multipliers in a liquidity trap and a currency
union, are unaffected. ...

1:00 – 2:15 pm
"Unemployment and Business Cycles"
Presenter: Martin S. Eichenbaum, Northwestern University
Coauthors: Lawrence J. Christiano, Northwestern University and Mathias
Trabandt, Board of Governors of the Federal Reserve System
Discussant: Jaroslav Borovicka, New York University

1:40 pm Hilary W. Hoynes, University of California at Davis and NBER
Marianne Bitler, University of California at Irvine and NBER Elira Kuka,
University of California at Davis
Do In-Work Tax Credits Serve as a Safety Net?Discussant: Bruce Meyer,
University of Chicago and NBER

11:20 am Anna Aizer, Brown University and NBER Florencia Borrescio Higa,
Brown University Hernan Winkler, University of California at Los Angeles
Impact of
Rising Inequality on Health at BirthDiscussant: Doug Almond, Columbia
University and NBER

12:10 pm Lunch

1:10 pm Adriana Lleras-Muney, University of California at Los Angeles and
NBER Anna Aizer, Brown University and NBER Joseph P. Ferrie, Northwestern
University and NBER Shari Eli, University of Toronto The Long Term Impact of
Means-Tested Transfers: Evidence from the Mother's Pension Program
Discussant: Hoyt Bleakely, University of Chicago and NBER

Moderator: Steven Rattner, Chairman, Willett Advisors; former Counselor and
Lead Auto Advisor to the U.S. Secretary of the Treasury

With outsize debt putting the stability of credit markets and the pace of
economic growth at risk, will Americans embrace shared sacrifice to set the
country on a path toward fiscal health? Or is the problem essentially the
result of gridlock in Washington? And what does "shared sacrifice" actually
mean? Who will bear the heavier burden: the rich, the elderly, the middle
class? Are Simpson and Bowles still relevant? Our panel will examine the
economics and politics around our accumulating public debt and annual
deficit, with an eye toward palatable and realistic solutions. Can we grow
our way out of the mess? How will we cope with the twin hazards of graying
demographics and healthcare inflation? Back to the credit markets: Are
Treasuries as safe as they seem?

There was remarkably little discussion of increasing revenues through tax rate increases. There was some
discussion of increasing revenue, but it was mainly about eliminating deductions like
home interest rather than increasing tax rates. Instead, most of the
focus was on, surprise, "entitlement reform" with only Orszag being careful to
point to health care costs as the main problem to solve.

The most entertaining moment was when the business guy on the panel, David
Cote, said that unlike in business where what you think, say, and do must align, for Congress
these are different decisions. Senator Corker said he was offended by
that comment and went on to defend Congress (e.g. saying many people in business
don't understand that politicians have to represent a diverse constituency). Ha.
A Republican fighting with a business rep, then defending government. Too bad he
wants to cut the crap out of it.

Other than that, the degree of hawkery and the implicit assumption that the only way to solve problems with our long-run budget picture is to cut social insurance programs the working class relies upon was, in fact, irritating. The continued discussion about deficit reduction as the key to spurring private sector growth was similarly irritating. It's exactly what we heard about the Bush tax cuts, and we know how that turned out. A huge increase in the debt load with little (if any) increased growth to show for it.

Finally, as far as I recall, the word "unemployment" did not come up. In the short-run, deficit hawkery is what's standing in the way of doing more to help with the unemployment problem. The key question -- whether the concern in the short-run with the debt rather than the unemployed is justified in the short-run (it isn't in my view) -- was not even discussed.

One quick first impression based upon the schedule of sessions. In the last few years, two or three years ago more
so than last year, there were quite a few "soul-searching" sessions from
the financial industry. How did financial markets fail, how can they be fixed,
etc. That's not to say that there wasn't a lot of resistance to regulation from
the industry, but they were at least dealing with the main issues, there was an attempt at an honest appraisal from many, and there
were quite a few sessions on the topic.

There are sessions on regulation this year -- I'm currently in one called
"Global Financial Regulation" (usual TBTF discussion so far, just turning to leverage) -- but compared to previous years the main concern
now appears to be where we are headed in the next few years, opportunities for
investment, etc. I suppose that's good news for the economy, but for financial
stability? There's still a lot of work to be done, and an eroding will to do it.

The developed economies of Europe, North
America, and Japan are facing tremendous challenges related to indebtedness
and stagnation. How will the developing economies of Asia respond to
this challenge as they reorient their growth strategies to meet the rising
aspirations of their people?

PLENARY PANEL INNOVATION SYSTEMS The Foundations
of Economic Prosperity: The Lessons of Innovation Process and History

The transformation of basic science into viable inventions that improve the
well-being of mankind is a delicate process. The study of innovation,
both in the past and the present, reveals a complex process that involves
complementary contributions from government, the financial markets, and the
investment community What has worked in past and what
current strategies are being successfully employed by nations around the
world?

PLENARY PANEL INTERSUBJECTIVITY: RENÉ GIRARD’S VISION OF
MIMETIC DESIRE AND ECONOMIC DYNAMICS Rene Girard, a French-born literary
scholar, has developed a theory of the formation of desire that is based
upon interactions between individuals. The process he calls mimetic
desire, when brought to bear on economic thinking, may have profound
implications for the theory of the consumer/individual, for the normative
conclusions of economic theory, and for economic dynamics in an era of
environmental challenges. A group of scholars who have been engaged
exploring the implications of Girard’s thinking and the ramifications for
the social sciences provide a window into this new realm of economic
thinking.

DINNER KEYNOTE Macroeconomic Policy and Economic Stability:
Lessons of the Historical Experience with Fiat Money and the Implications
for the Future

Adair Lord Turner explores the role of financial,
monetary, and fiscal policy management in this era of deficient aggregate
demand, and discussants explore the implications of Turner’s thinking on
monetary financing of debt in light of the current challenges facing many
nations at the forefront of the world economy.

The architecture of the international monetary system has important
implications for the privileges and responsibilities of the reserve currency
countries at the center of the system. As China continues to develop
and become a leading economy in the global system, it will be important to
understand the evolving role of the RMB as a potential new reserve currency
and to understand both the domestic and international ramifications of this
institutional evolution.

Moderator:
Paola
Subacchi - Research Director, International Economics Chatham House

10:45 - 11:15

COFFEE BREAK

11:15 - 12:45

BREAKOUT SESSIONS

BREAKOUT SESSION A THE EURO ZONE
CURRENCY SYSTEM: CATALYST OR WRECKING BALL OF THE EUROPEAN UNION?

The flaws in the euro zone single currency system that were uncovered by
the crisis of 2008 have crippled many European nations for more than four
years. Self-fulfilling sovereign debt default spirals, persistent
intolerable levels of unemployment, and disputes over the proper role for
the European Central Bank are telltale symptoms of a social and economic
system in disarray. What can be done to fix this system? Can it be
repaired and once again become the basis for a hopeful and balanced
integration of Europe?

INET's financial stability research program encompasses a range
of working groups. These focus on the causes and consequences of
the instability of the financial system, and on new modeling approaches
to credit and the macroeconomy. Agent-based and network-based models provide
a window into the system's dynamic instability, while legal and
political-economic approaches shed light on the institutional architecture
of the financial system.

This session will feature the Organisation of Economic Cooperation and
Development (OECD) initiative on New Approaches to Economic Challenges
(NAEC). NAEC is an organisation-wide reflection process to upgrade the
analytical frameworks and strengthen the policy advice of the OECD. Its
objective is to develop a strategic policy agenda for inclusive growth. The
financial and economic crisis is a key motivation for NAEC, but the
reflection also aims to identify policy options to address the current
challenges we are facing (slow growth, high unemployment, increasing
inequality), as well as the rise in interconnectedness and complexity of the
world economy.

The formation of expectations and the subtle implicit assumptions regarding
knowledge held by consumers, businesses, investors, and policy makers is a
foundation stone that must be thoroughly explored so that models of economic
dynamics represent the phenomena under investigation in an illuminating
manner. The obvious presence of non-routine change, or what Frank Knight
called radical uncertainty, challenges the very notion that dynamic economic
systems can be modeled as closed systems. How do these models perform? If
dynamic economics is better envisioned as an open system, what can
researchers do to understand and analyze the decision making process? What
are the implications for economic policy and governance of open system
dynamics?

Sheila
Dow - Emeritus Professor, University of StirlingRoman Frydman
-Professor of Economics, New York UniversityRoger Guesnerie
-Chairman of the Board, Paris School of EconomicsGeorge Soros
-Chairman, Soros Fund Management; Open Society Foun- dations

EXPLORATIONS IN NEW
ECONOMIC THINKING SESSION A THE IMPERFECT KNOWLEDGE ECONOMICS
(IKE) APPROACH TO MODELING AN OPEN WORLD

The INET research program on IKE is working at the University of
Copenhagen, New York University, and the University of New Hampshire to
understand the implications of fallibility for economic systems. In these
sessions, IKE researchers will discuss how they model risk in asset markets
and the evolution of asset prices in a world characterized by imperfect
knowledge.

Nick
Mangee - Junior Research Associate, INET Program on IKE Rationality in
the Present-Value Model of Stock Prices: Fundamentals, Psychology, and
Structural ChangePeter Sullivan - Junior Research Associate, INET Program on IKE
Rationality and the Meese and Rogoff Exchange-Rate-Disconnect Puzzle:
Learning vs. Contingent KnowledgeMorten Tabor - Research Associate, INET Center on IKE at the University
of Copenhagen Econometrics of IKE Models

General Discussion (15 minutes)

Part 2 (15:55-16:30): IKE Modeling of Risk in Asset Markets

Olesia Kozlova - Junior Research Associate, INET Program on IKE
Forward-Rate Bias, Contingent Knowledge, and Risk: Evidence from Developed
and Developing CountriesJosh Stillwagon - Junior Research Associate, INET Program on IKE
A Keynes-IKE Model of Currency Risk: A Cointegrated VAR Investigation

General Discussion (10 minutes)

EXPLORATIONS IN NEW ECONOMIC THINKING SESSION B WHAT IS
THE ROLE OF PSYCHOLOGICAL CONSIDERATIONS IN ECONOMICS?

Many of our global problems – from climate change to financial crises –
arise from people’s failure to cooperate adequately to achieve socially
desirable outcomes. There is a widespread recognition that we need a deeper
understanding of human nature in order to discern new opportunities for
human cooperation. The Kiel Institute and the Max Planck Institute in
Leipzig are developing an interdisciplinary program with INET to examine new
avenues of how psychological and neuroscientific knowledge about human
motivation, emotion and social cognition can inform models of economic
decision making. How can a profounder understanding of human motivation and
preferences lead to a broader appreciation of our prospects for pro-social
and sustainable economic behaviors?

David
Tuckett - Training and Supervising Analyst in the British
Psychoanalytical SocietyInske
Pirschel - Research Assistant, Christian-Albrechts University of KielGert
Pönitzsch - Research Assistant, Kiel Institute for the World EconomyCars
Hommes - Professor of Economics Universiteit van Amsterdam

The Chinese economy has developed at a remarkable pace over
the last 30 years. The integration of China into the world economy has
led to extraordinary flows of foreign direct investment, infrastructure
buildup, and an impressive export capacity. As we look to the
future, both domestic and international considerations bear on the capacity
for China to continue on this robust course and for the world to adjust to
China’s growth and changed role. The differences in philosophical, legal,
and governance systems between China and the West suggest that the
challenges will be formidable and that cooperation and mutual benefit will
require extraordinary attention.

How do different nations handle the problem of social design? What is the
role of legal systems in creating and implementing that design? There is a
large body of comparative evidence on the behaviors and performance of
different legal traditions. These concerns are of vital importance to
emerging nations as they plot their course toward institutional deepening
and maturation to facilitate their development.

The extraordinary development of the emerging economies
has been associated with increasing incomes and rising inequality. In the
developed world, the integration between emerging and mature economies also
has been accompanied by rising inequality, most profoundly in the United
States. A myriad of causes related to trade, policy, and technological
change have been cited as, reasons for the unequal distribution of income
and wealth in varying degrees. As the process continues, what are the
implications for societies across the planet as these three large and
powerful economies move into the future?

Steven Durlauf - Professor, University of WisconsinXiao Geng - Director of Research and Senior Fellow Fung Global
InstituteJohn McArthur - Senior Fellow, Fung Global InstituteSanjay Reddy - Associate Professor of Economics, Director of
Undergraduate Studies, The New School for Social Research

BREAKOUT SESSION A AUSTERITY,
POLARIZATION, AND THE PROSPECT OF REGIME CHANGE

Both the international economy and the economies of many individual
countries are badly out of balance. Not surprisingly, political polarization
and social cleavages are sharply increasing within many, though not at the
same rate. This panel looks at the varying experiences of Europe, the US,
and some countries in Asia, considering not only the domestic roots and
complications of policy making, but also how austerity continues to generate
major turmoil and challenges to existing political arrangements.

Moderator:
Steven
Durlauf - Professor of Economics, University of Wisconsin

12:30 - 14:15

LUNCH KEYNOTE WHAT IS DEVELOPMENT?

Many developing
countries have experienced rapid increases in GDP growth, and traditionally
this was considered an adequate proxy for improved human welfare within
these countries. However, in recent years some countries have experienced
higher growth accompanied by environmental degradation, rising inequality
and, social unrest. As a result, we are forced to ask what it is that
constitutes real progress and development in a society.

EXPLORATIONS IN NEW ECONOMIC
THINKING SESSION A FINANCIAL INSTABILITY WORKING GROUP

The INET program on financial instability and macroeconomics has
developed a series of studies on dynamically unstable systems. Shadow
banking instability, contagious network dynamics, and stock/flow interactive
models will be discussed to showcase a series of research projects that are
unfolding with INET support.

A key question for many countries is how to re-invigorate growth after
the crisis. The INET@Oxford program is collaborating with an
international group of scholars on new approaches to understanding economic
growth and innovation from a complex systems and evolutionary perspective.
This session will review recent work and discuss its potential implications
for re-thinking public policy approaches to economic growth.

PLENARY PANEL ECONOMICS AND THE POWERFUL: FAULTY ANALYSIS,
ECONOMIC ADVICE AND THE IMPERATIVES OF POWER

When economies exhibit
dreadful results is it because we have flawed understanding? Or are correct
models often ignored? Are good economists listened to? Does scientifically
robust work prevail when it conflicts with the desires of the powerful? What
are the lessons of economic history for understanding the role of expertise
in guiding social outcomes?

Central banks across the planet are engaging in a robust agenda that
would have been unrecognizable just a few years ago. Quantitative
easing, macro prudential monitoring, asset market support in Europe have all
made it much more difficult to understand what a central bank does and does
not do.

Can central banks easily mop up liquidity and shrink their balance sheets
when the world economy begins to recover, or will inflationary dynamics
emerge? In the mystical realm of money, are central banks courting
controversy that will threaten their credibility and stature within society?
If they lose their leading role what will markets condition their
expectation upon?

The purpose of the meetings is to "provide a globally recognised forum for the exchange of knowledge between Nobel Laureates and young researchers." These young researchers -- at least the ones interested in macro -- are the ones who will be most likely to shake off the shackles of the past and develop new theories of the macroeconomy. So I'll be curious to see how that topic is handled. Will Stiglitz push hard in this direction and if so, how will the other Laureates, e.g. Phelps and Prescott, respond? Note that Prescott's abstract starts with "This is the golden age of aggregate economics." Stiglitz's abstract, on the other hand, begins with "The standard macroeconomic models have failed, by all the most important tests of scientific theory." Those two talks aren't until later in the week, but as I said I'll be very interested to see how this critical issue is presented to the upcoming generation of economists.

Update: I'm glad Stiglitz is here. In the opening panel, he began the discussion of macro models, and said (to applause) that macroeconomic models played a role in creating policies that caused the crisis. He also attacked austerity. Without him, there wouldn't be a strong advocate for these views at this meeting.